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Belief Formation: An Experiment With Outside Observers

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Author Info
Kyle Hyndman () (SMU)
Wolf Ehrblatt () (NYU)
Erkut Ozbay () (Maryland)
Andrew Schotter () (NYU)

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Abstract

In this paper we investigate the necessary ingredients for an accurate model of belief formation. Using experimental data from a previous experiment, we bring in a new group of subjects whose job it is to predict the action choices of the subjects from the previous experiment. While the rules we consider are all, strictly speaking, adaptive (being based on past observables), some of the variables we uncover represent fairly sophisticated behaviour. Going from less to more sophisticated, we find that the following are important components of the belief formation process: the history of play, payoffs (whether real or ``imagined" in the sense of Camerer and Ho (1999)) of the player whose actions our subjects are predicting and the payoffs of the other player. The paper also documents the presence of subject-specific heterogeneity in both initial beliefs and, to varying degrees, almost all of the variables found to influence beliefs.

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File URL: ftp://ftp1.economics.smu.edu/WorkingPapers/2008/Hyndman/observers.pdf
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Publisher Info
Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0802.

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Date of creation: Apr 2008
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Handle: RePEc:smu:ecowpa:0802

Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Phone: 214-768-2715
Fax: 214-768-1821
Web page: http://www.smu.edu/economics

For technical questions regarding this item, or to correct its listing, contact: (Kyle Hyndman).

Related research
Keywords: Game Theory Belief Formation Learning.

Find related papers by JEL classification:
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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This page was last updated on 2008-7-9.


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